FDIC sues former officers of Broadway Bank

Onetime Senate candidate Alexi Giannoulias not named in suit

however, complaint says bank's board members deferred excessively to 'whims' of Giannoulias family

March 07, 2012|By Becky Yerak, Chicago Tribune reporter

The Federal Deposit Insurance Corp. on Wednesday filed a $104 million lawsuit in connection with the April 2010 failure of Chicago-based Broadway Bank. Among those named were former President Demetris Giannoulias. (Phil Velasquez, Chicago Tribune)

The Federal Deposit Insurance Corp. on Wednesday filed a $104 million lawsuit in connection with the April 2010 failure of Chicago-based Broadway Bank.

Among those named were former President Demetris Giannoulias. His brother Alexi Giannoulias, a former state treasurer who lost a U.S. Senate race amid questions about his role in the bank's troubles and was a senior loan officer from 2002 to 2006, wasn't named in the suit.

The FDIC alleges gross negligence, negligence and breaches of fiduciary duty by seven former directors and two former officers who approved loans that sank the fast-growing bank. The regulator is seeking to recover $104 million in losses from 17 bad loans.

Tilden Katz, spokesman for Demetris Giannoulias, said the facts in the complaint aren't accurate.

"The FDIC now blames Broadway's former officers and directors for not anticipating the same unprecedented market forces that also surprised central bankers, national banks, economists, major Wall Street firms, and the regulators themselves," Katz said. "Every officer and director of Broadway Bank did their best for the institution, and they will vigorously fight these unsubstantiated claims."

The suit said the defendants approved two of the worst loans on June 24, 2008 — immediately after bank regulators ordered Broadway to improve its lending operations. The two loans resulted in a combined loss to the bank of $12 million.

Underwriting was perfunctory or non-existent, and loans were made without proper appraisals and sometimes to borrowers who had already stiffed the bank, the suit said.

The $1.06 billion-asset bank failed in April 2010. The estimated loss to the insurance fund is $391.4 million.

"Broadway Bank was driven by a disregard for risk and a willingness to lend millions of dollars to un-creditworthy borrowers for speculative commercial building projects not only in Illinois but in New York, Florida, California and other locales," the suit said.

"The bank didn't have sufficient staff to monitor these out-of-state projects adequately," the suit said. When the bank was seized, more than half of its loan portfolio was secured by out-of-state projects. And the bank made an "excessive" number of loans for condominium and hotel projects despite those markets being "saturated," the suit said.

Outside board members "were grossly inattentive to the affairs off the bank, deferring excessively to the whims of the Giannoulias family," the lawsuit said.